Tuesday, May 31, 2011

Che loved his Rolex Watch. Probably took it off a dead Capitalist. He also enjoyed killing people, including children. Hypocrisy is the least of the sins of the Communist.

Communism Sucks. And Socialism isn't far behind. Why is this? Because any system that places absolute power in the hands of a few individuals - or one individual - results in the persecution of a large number of people and economic misery for most.

Regardless of the "faults" of our economic and political system, America remains one of the most prosperous and free countries on the planet - perhaps the most in both categories. Consider that in France, they are talking about banning headscarves or in Switzerland banning the construction of Minarets. In America? You'd have a hard time getting either law to pass.

And please, don't try to compare an outright ban on Minarets in Switzerland with the fake "controversy" of the "ground zero Mosque". In America we have a staggering amount of freedom - economic freedom - which of course is the same thing.

Same thing? Yes, freedom and financial freedom are intertwined, if not the same thing. You cannot be free and beholden to others financially. On the flip side, if you have financial freedom, you can pretty do just about whatever you want.

There are many who would argue that the two are distinct - as in the distinction between free speech and commercial speech. But I would argue that they are the same. But that is a topic for another posting.

Communism sucks, let's face it. And yet there are people out there who still secretly - or openly - admire it and think it would "solve all our problems." But like any extremist solution, the cure is worse than the cold, and Communism clearly falls into that category. Why? Well, a number of reasons.

1. The Track Record of Communism Speaks for Itself. Communism has had a Century to try to work, and has failed utterly. Not only have communist economies collapsed, but the record of violence and intolerance in Communist countries has been staggering.

Commies like to talk about how great things are under Communism - and how awful things are under Capitalism. And while our country has its share of troubles (and has had its share) we do not have a secret police (and never have) who breaks into people's homes, drags people away in the middle of the night, and then lines them up against the wall and shoots them.

Communist countries, without exception, all have this feature. People are stuffed away in jail or just shot like dogs, without a trial. Or sent to detention and torture camps for years, until they die of exhaustion.

Oh, yea, I know what the Commies are going to say, "What about Guantanamo Bay?" - as if the detention of a couple hundred suspected terrorists is akin to the massacre of millions of people by the likes of Stalin.

Yea, you're right, they are equivalent. In Commie-dream-world, that is. But the reality is, people in this country are pushing to have trials, or at least military tribunals, for the inmates in Guantanamo Bay, and no, "water boarding" is nothing like what happened to people in Cuba, China, or Russia. What we consider abhorrent, they consider patty-cake.

And yes, you are right, that doesn't make it OK. But in this country, you are free to protest that, to fight against injustice, and change things. And therein lies the key - not that our country is "perfect" or never does any wrong, but that there are mechanisms for protest, change, and reform - and that changes and reforms do occur and atrocities are not swept under the rug.

Such mechanisms do not exist in Communist countries. At all. In fact, if you argue that the government is wrong, you will end up in a Gitmo-like detention, only 1,000 times worse. And no one from the ACLU will be trying to get you out.

Of course, one of the problems with Guantanamo is that we let a few people out of there who we thought were innocent taxi drivers, and, well, they turned out to be terrorists and went back to blowing up things. This makes the government a little gun-shy about letting any more go. Can you blame them?

2. Communist Countries devolve into Dictatorships: The Dictatorship of the Proletariat, Marx called it. Back then, the term "Dictator" was not so emotionally loaded as it is today. Studebaker even named a car after it. They had the Commander, the President, and the Dictator - the latter disappearing from view after the start of WWII.

But Communist countries quickly devolve into a Dictatorship of the Dictatorship, as the command economy model puts all power in the hands of a few. And a Dictatorship, by design, quickly devolves into a Police State. No one with absolute power will let go of it without a fight, and quickly paranoia sets in, as the Dictator sees enemies behind every tree.

As a result, freedom is squashed, people are browbeaten into submission, and live in a constant state of fear.

3. Everyone is Equal, but Equally Poor. Che Guevara, during his famous motorcycle ride, said he saw the plight of the Andean miners, living at a subsistence level, and wanted to do something about it. So he reduced an entire country to a subsistence level. Everyone was at least, equal, I guess.

Since Command economies are horrendously inefficient (even compared to inefficient capitalist economies) and there are no incentives to produce, people end up starving - almost without exception.

So yes, everyone - or nearly everyone - in a Communist country has a similar standard of living. But that standard of living is abject poverty, if not in fact, starvation. Meanwhile, the party bosses drive their Zil limousines down their designated lanes during rush-hour Moscow traffic. Everyone is equal, but some are more equal than others.

At least in a Capitalist economy, there is some rough correlation between achievement and success. Being wealthy in America depends more on labor and effort than merely who you know or how you claw your way up the party apparatus.

4. Everyone Wants Out, No One Wants In: One of the most famous litmus tests of any country is whether people struggling to leave or enter. No one wanted to live in Communist Russia or Communist Cuba. But everyone tried their darndest to leave - even risking their lives to do so. And it continues on today, in Cuba, as people try to float their way to a better life in the USA.

Of course, you commie-pinkos out there will say, "Well, they are just leaving for a better economic life, not for real freedom". But as I noted before, the two are intertwined, if not the same. Freedom of speech is fine and all, but what's the first thing a free man will stand on his soap box and complain about? Yup, taxes.

And please, none of this "Cuba suffers because of the American Embargo" bullshit. Every other country in the world trades with Cuba, and they have an opportunity for economic freedom. They suffer because the Communist Command Economy simply doesn't work. No one else wants their sugar cane, or at least no one is willing to pay much for it.

* * *

It is a shame that in 2011, I even have to write such an entry. But there are people in this country - people I know, who still secretly or openly admire Communism. Most of these are academics, who feel powerless in their own lives. They believe, wrongly, as Oscar Wilde did, that "Educated Men" such as themselves would be put in charge, once the revolution comes. And once this educated elite ran things, well, everything would just be hunky-dory!

But the reality is, academics make lousy managers, having no real-world experience. And academics are the first ones lined up against the wall, when the revolution comes. So be careful what you wish for.

"Democracy is the worst form of government, until you consider the alternatives" - a quote variously attributed to Will Rogers or Winston Churchill. And it is indeed true. Our system of government is horribly inefficient and often results in horrible compromises, a race to the bottom, and back-room back-scratching. But there is really no better system out there, and the errors and excesses of our present system would not be improved by a switch to Communist Rule.

Depression is a normal part of life. However, being depressed all the time is not.

Depression is rampant in the United States, which is odd, because we are one of the wealthiest countries in the world, and moreover have a large population of middle class people, despite what naysayers might tell you. And oddly enough, it is often the wealthier people in the US who are depressed the most.

Chronic depression is of course, something you should consult a doctor about. If you are chronically depressed, seek help - there is no shame in that.

Many people, however are just occasionally mildly depressed, and convinced that something is "wrong" with them - and they seek help in the form of a pill, which many Doctors are all-too-willing to prescribe.

But some depression is normal, in everyone's life. And there isn't necessarily a reason for depression. Emotions, as I have noted before, are like farts. Everyone has them, and they are often a function of what you ate a few hours ago, more than anything. So expect to be depressed on occasion. It's OK, and once you realize that, you know that it will end later on.

The problem severely depressed people have is that they never see a way out of their depression.

But there are other, non-drug solutions to depression, at least for occasional or mild depression. And Diet is one of these. As I just noted, emotions can be related to what you eat, and Americans have horrible diets. We eat diets high in carbohydrates - starches and sugars. As a result, our blood sugar soars and then plummets with each meal or snack. If you find yourself mood-swinging several times a day, take a good look at your diet. French fries and a soft drink are a recipe for a brief euphoria, followed by a prolonged depression, or a nap.

And such a diet will make your moods worse and worse, as you start to develop type-II diabetes. Eventually, your blood sugar will be all out of whack, and you will be going up and down like an elevator. Get ahead of this by swearing off sugar and sugary drinks - especially High Fructose Corn Syrup junk. And stay away from starchy meals of all pasta or all potatoes - what is served in most restaurants these days.

Exercise is the other half of the equation. Taking a long walk, instead of watching the TeeVee, is good for both your mental and emotional health. You body needs to exercise, and lack of exercise forces your body into a stasis mode, where the metabolism basically shuts down to a minimal calorie consumption. Lack of movement leads directly to depression. And the American lifestyle - a sedentary lifestyle - eating, sleeping, watching TeeVee, driving everywhere, leads directly to depression.

Change is also one way to fight depression, as well. My personal opinion is that depression is your brain's way of saying "Warning! Danger! Take Action!" and yet many people smother that reaction with drugs and alcohol. Depression, as simplistic as it may sound, is your mind's way of telling you that you are unhappy. Unhappy with your lifestyle, your job, your spouse, or something. Change is often a means of breaking the cycle of depression - even something as simple as a change in hairstyle.

You see, if you feel helpless and a victim of circumstance (and boy-howdy will the TeeVee pander to that!) you tend to feel depressed. You feel that no matter what you do, it makes no difference in your life, so why bother. It is a form of learned helplessness.

Taking charge of your life and demonstrating to yourself that you do have some control over your life will often cheer you up, as it jogs your brain out of that mode of helplessness and passivity.

Listen to depression, it is talking to you. Are you unhappy in your job? Never mind that it is a "dream job" that pays a lot and "you should be happy!" - the key is whether you ARE. I see this all the time in the field of law - people who become highly paid lawyers with successful careers, and yet are not satisfied. They go on vacation and look on with envy at the beach bum running the snorkeling concession on the beach - "That guy has it made!", they think, but of course, their wife wouldn't let them quit the high-paying job - they've got kids in school and she wants that new Lexus SUV.

And yea, I've seen people quit the "dream job" in mid-career and do something completely different. I sort of did. And you know, sometimes they find their muse - and they find that making a lot of money, and spending it as fast as they make it, isn't all its cracked up to be.

But short of going out for cigarettes and never coming back, there are things you can do to make changes in your life that will help alleviate depression. Start a new hobby, plan a vacation, buy an old car and fix it up. Something that involves you taking control for a change and not feeling so passive.

Television is what I call the "depression box" or as I derisively refer to it here, "Tee Vee" (a tip o' the hat to the Madman Muntz). One way to change your life and to become less passive is to chuck it out entirely. Boy, would that piss off the wife and kids! And for that reason, many folks don't have the courage to do it. But life without TeeVee is a happier life, and that $100 a month cable bill feels a lot better invested in the old 401(k). Unplug the TeeVee - go for a walk. Take the family to the library. You will be happier, smarter, and healthier in the long run.

Procrastination is something that also leads to depression. The human brain wants to feel useful. And yet, it is so tempting to play computer solitaire instead - accomplishing nothing. A day of procrastinating is a day of depression, as it leaves you, again, feeling helpless and not in control of your life. The best way to fight procrastination is to set some simple goal - sometimes something ridiculously simple - and then accomplishing it. Once you do that, then set another goal and tackle that. Pretty soon, you get a lot done.

Most folks do just the opposite - they set an impossible set of goals to reach, and then get all depressed by the end of the day when none of them are done. But in reality, the goals were unrealistic to begin with.

It also helps to realize that some days you get a lot done, and others you don't - which is why I don't like working in an Office environment. When you work at home, you can work when you feel productive, and do something else when you are not. And by doing something else, I don't mean watching TeeVee.

Drugs can backfire in a big way. I know a fellow who is chronically depressed. He takes anti-depressants and other medications, and then washes them down with beer and bong hits. I suppose one counteracts the other - maybe. But if you are depressed, taking depressants (beer, pot) is not a step in the right direction.

Contentment is often more important than happiness. In America, we are fed this myth that you should be "happy" all the time, and when your life doesn't measure up to that standard, you feel that there is something wrong with you. Relax. No one is that happy - unless they are on speed or something (and no, methamphetamine is a horribly wrong answer to depression). Learning to be content as opposed to hysterically happy is, I think the key. Only circus clowns are hysterically happy all the time, and even then, it is an act.

The long and the short of it is this - take control of the joystick of life, and prove to yourself that your inputs DO have some effect. Depression for many people results when they feel helpless and weak - as if "nothing matters" because no matter what they do, nothing changes.

But if that doesn't work and you suffer from chronic depression, see a professional. A pill should not be the first solution, but sometimes, for some folks, it can be the best.

Why do people worry so much, even though they have little to worry about? Is this part of the programming in our brains?

Worry. It, well, worries people. And people worry about the stupidest stuff. Did I leave the iron on? Maybe the stove? Perhaps the house is on fire, even as we speak! The brain, it seems, has an endless capacity for worry.

Or, let me amend that - perhaps the brain has a constant capacity for worry. In other words, you get rid of one thing in your life to worry about, and your brain obsesses about something else. It is like the amount of worry expands to fill the void, once you eliminate one worry.

People buy lottery tickets on the premise that they will "win big" and "never have to worry about money again!" The reality is something different. You win millions of dollars, and your money worries are just starting - the more money you have, the more you have to worry about!

We worry about paying our bills, saving for retirement, not going bankrupt, losing our jobs, getting into an accident, having an unexpected repair bill. And we worry about our health.

And that is the ultimate worry that no one worries about enough - in this country. We over-eat and over-drink and smoke and fail to exercise. And yet, if asked, most folks would say their main worries were financial or political. And yet the most likely "bad thing" to happen to them will involve an ambulance.

Living here on retirement island, I see that worry is never-ending. People retire here, comfortably, and have enough money to live on. Many have pensions, in addition to Social Security. No worries, right? And yet, many worry themselves to death.

And many of these worries seem silly to the rest of us. People create worry to fill a void in their lives, and oftentimes, these sort of worries are trouble-makers. In other words, people create trouble so they can worry about it.

The two main worries, of course, when you retire, are running out of money or losing your health. And most people drown out those worries with more superficial worries - such as voting Suzie out of the Parcheesi club, or complaining about the government.

I've seen people who drink to excess, don't exercise at all, are easily 50 pounds overweight, and smoke. What is their primary worry? That Obamacare will bankrupt the country. And yet, I see a massive coronary as an event far more likely to impact their lives in the near future. And yet, that is something that they can actually DO something about - by losing weight, eating better, exercising, dieting, drinking less and cutting out cigarettes.

That is an extreme example, but it illustrates how we all sometimes obsess about things that are largely out of our control, while blithely ignoring those things more likely to affect us that we do have control over.

I was at the bank the other day and the bank manager was turning up the volume on the TeeVee in the bank (why do banks need TeeVees anyway? If I was manger I'd toss that, first thing). She was telling me that there was some compelling testimony in the "Tot Mom" case or some such bullshit.

She said "Have you been following this?" and I replied, "Well, no, I find those sort of things really don't impact my life very much, and I don't have the emotional energy to devote to such things."

She probably thought I was being rude, and she probably thought I was an idiot for not obsessing about the "Tot Mom" on trial. But if you think about it, what is the point? Unless you are on the jury, it really makes no difference. And publicizing and making these tragedies into celebrity trials rarely results in justice being enhanced. Remember the O.J. trial? If there weren't cameras in the courtroom, O.J. Simpson would be on death row, today.

Worry is unavoidable. And excessive worry can lead to depression. When you worry about things that you have no control over and cannot change, your brain starts a downward spiral of depression and pent-up anger. Figure out what you can worry about that you CAN change - your behavior, your eating habits, your spending, your work habits, your drinking, your smoking, your driving, etc. Because chances are, by altering the habits you can control you can immensely improve your life.

Only potheads sit in the basement, refusing to help themselves on the grounds that "there are larger political issues at stake, here, man!" It is a loser's game, as larger political issues take decades to sort out - if they ever are. And in the meantime, you've wasted a lifetime of energy worrying about someone Else's political cause.

Worry is annoying, to be sure. But like any other emotion, if you can harness the energy and put it to good use, you can improve your overall lot in life. Emotions, by themselves, are not to be trusted. Over-analyzing them can also be a dead-end. Take than energy and focus it where it can do some good.

This television program has done more to ruin the psyche of American homeowners than any one single thing. These two are indirectly responsible for the economic meltdown of 2009, I believe.

As I have noted before, public broadcasting is very suspect, and nowhere is this more true than the television series This Old House. As I noted in The Paraphernalia Generation, our generation is very well kitted-out, and everything we do has to be over the top, whether it is our pot pipes, our coffee makers, our cars, our boats, or our houses.

And in the late 1970's, hippies morphed into Yuppies and started getting jobs, settling down, and buying older homes in the cities where they were living. And after a few bong hits, they thought, "Gee, let's re-do all the funky woodwork in this old house" - and the home restoration mania started.

This Old House went on the air in 1979 and started selling the idea of restoring older homes. While it was an interesting program at first, like so much else on television - even or especially public broadcasting - it morphed into little more than advertisements for "underwriters" - the sponsors of the programs.

So, early on, "sweat equity" was out, and "leave it to the experts" was in. And of course, the experts usually recommended installing things sold by the sponsors of the show. Bob Villa ran into trouble early on, when he tried to parlay his participation in the show into some commercial gigs for a local chain of home improvement centers - angering Home Depot, one of the shows "underwriters" (sponsors).

They don't take advertisements on PBS, of course, right? Everyone knows that. But you don't piss off the sponsors, just like regular TeeVee. An no, I am just kidding in that first sentence. PBS takes a LOT of money from sponsors - they don't really need your tote bag pledges.

This Old House went on to tout a number of home improvements of dubious or limited merit. While restoring an old home is a great thing, for most middle-class Americans, it is an unaffordable nightmare. And some of the improvements touted are very complex solutions to simple problems.

For example, radiant heat and hydronic heating are routinely touted on the show, which is a staggeringly expensive way to heat a home. Engineered Hardwood floors were oohed and aaaahed over, but no one bothered to mention what happens when you get them even a little bit wet. Things like stainless steel appliances, granite counter-tops and other "upscale" accoutrements were also touted as "must-have" items. And most of these are pure ego, pure status, not practical or necessary improvements.

Unlike our parent's generation, the home was no longer just a place to live, but was to become a showplace to flaunt our apparent wealth, often at great personal expense to ourselves and by taking on huge debts.

For most of us, however, a house is just a place to live - not some showplace. And few of us live in antique homes which merit such restoration efforts. I know that I fell into the "This Old House" trap, at least initially, as an impressionable youth.

When we bought our home at 8033 Washington Road, it was a tract home - a ranch house from 1949, built inexpensively during the post-war boom. We should have realized that the home was just that - rather than trying to make it more than it was. As it was, the home was bulldozed in 2005 to make room for two new homes. It was hardly worthy of restoration - it was hardly built to begin with.

We initially installed a storm door, and listening to the boobs at "This Old House", we thought that a "real" wooden storm door - the "old fashioned kind" was the way to go. But what we quickly realized was that wood rots, sags, and continually needs painting. It swells, too, and as a result, the fitting of the door changes with the seasons. Such a door might be appropriate in an historic building in Old Town Alexandria, but was just an expensive waste of money in a tract home in Hollin Hall Village. When it rotted off a few years later, we bought a nice insulated aluminum storm door that worked 1000 times better and never needed painting, adjustment or anything for more than a decade.

Similarly, we fell for the argument that only "real wood" windows, preferably Pella or Anderson, was the way to go in replacing our aging, rusting, steel-frame casement windows. What we realized quickly was that such windows were horribly expensive and difficult to install.

We finally wised up and realized that cheap vinyl replacement windows work great, cost little, and never need painting. And for a non-historic home, they are definitely the way to go. Our ancestors spend countless hours painting and repainting siding, doors, and windows. You may think vinyl siding is tacky, but it is cheap to buy, easy to install, and lasts decades with little maintenance other than occasional washing. Paint, on the other hand, starts to peel within a year or two, even for a "properly" done job (which isn't cheap).

What I failed to realize was that the show was little more than a giant product placement for the show's sponsors, including by GMC, The Home Depot, Weyerhauser lumber, State Farm Insurance, Andersen Windows, GE major appliances, Stanley Tools, the National Association of Realtors, Parks Corporation (featuring its line of Carver Tripp paint thinners/sealants/wood stains and treatments), Glidden paints, Montgomery Ward, Ace Hardware, Kohler plumbing, Schlage locks, Century 21 Real Estate, Toro lawnmowers/snowblowers and ERA Real Estate and of course and Owens-Corning, whose pink insulation is featured in nearly every project.

Of course, the major fallacy that the show promotes is that you can fix up an old house and make money at it - or at least break even. But the reality of "home improvement" is otherwise. For every dollar you plow into a house, you might get back 50 cents in immediate resale value increase - if that. And this is particularly true if you have to hire people to do every bit of work. Sometimes it is cheaper to just move, rather than try to remodel.

But of course, we all took the bait, hook, line and sinker, and by the 1990's, nearly everyone of my generation had bought into the home-as-nest-and-status-symbol way of thinking, and the home improvement bandwagon had taken off, with full steam. We laughed at our parents and the older generation, who were content to just live in a home as it was, without feeling the need to periodically tear it apart. What were they thinking? That outdated wallpaper! That old kitchen! It all needed to be torn out and done over!

But then the recession came, and the "look at me!" houses with their horrendous mortgage payments started being foreclosed upon. Marriages broke up over the staggering costs of home remodeling and decorating. Now is a good time to pick up one of these dinosaurs for cheap - if the previous owner didn't smash all the granite counter-tops in a fit of pique.

What we realize, in this new era, is that "Norm" and "Steve" were selling us the false God of consumerism. Remodeling a house isn't some sort of treat, but an expensive and inconvenient nightmare. And no matter how nice a job you do, chances are, for every dollar you put into a house like that, you will be lucky to get 50 cents back. You'd better love that new kitchen and bath, because it cost you a lot of money - out of your retirement savings.

And after five years, that "real wood" siding and "real wood" windows and "real wood" doors will all need to be scraped and repainted, if not replaced. You might as well hire a handyman permanently to keep the place up.

A house is just a house. And on any given block, the spread in price between the fanciest remodeled house and the most run-down fixer-upper, isn't that big. Throwing a lot of money at a house often doesn't result in accomplishing anything, other than to stoke your ego.

And when it is all said and done, it is just a house. A home is a psychological thing, not a physical one. A Real Estate Agent may claim to be selling homes, but they sell only houses - you make them into a home.

And owning things is not an end in and of itself - particularly when you are dead broke most of the time because you are mortgage stressed and house-poor.

For me, I would rather do things than own things. It is tempting to want to "fix up" a house and throw money at it. But in the long run, it really doesn't accomplish much, unless you enjoy the process and enjoy using the space.

If you have a functional, usable kitchen and bathroom, leave them alone. Sometimes you can "make over" a room for not a lot of money, as opposed to ripping everything out and starting over. For example, we re-did this kitchen in New York for not a lot of dough. We though, briefly, about the granite counter-top thing - after all, that was a "must have" item, right? But as it turns out, the value of the home depended on its size (number of bedrooms) and location.

Location determines value, not content. If there are no affluent buyers in your neighborhood (no jobs, for example) you can improve a home all you want - no one will be able to afford to pay you much for the improvements.

No matter how much you make, or how little, the secret to happiness is to spend less than you make. Sadly, few do this.

The other day a friend came by. They had an intractable problem and asked for my help. "You're good with money," they said, "Can you help me figure out all these bills?"

Their problem, as it turns out, was not all that difficult. Over their entire lifetime, for every dollar they made, they had been spending a dollar and ten cents. They had lived beyond their means for decades, and now it was all coming home to roost.

For many folks, the idea that you can live beyond your means seems like defying the law of gravity. "How can I be living beyond my means? After all, that is financially impossible!"

Oh, but it is possible! And you can live on 110% of your income for decades, even, before it catches up with you, in a very big way. How? There are a number of ways people do this - and none of them do it consciously. People live beyond their means all the time thinking they are being fiscally responsible. After all, they get free airline miles on their credit card, right?

Wrong. What ends up happening is a lot of small actions that end up causing trouble, over time:

1. Cashing in Equity in the Home: This was very popular in the last decade, when home prices skyrocketed and people could take "cash out" in a refinance or home equity loan. The consumer charges up a mountain of credit card debt (living beyond their means) and then pays it off with a home equity loan. Their credit rating soars and new credit card offers come in the mail.

The immediate damage from this practice is not visible, as the consumer thinks they are being financially astute, as their cash-flow requirements have been reduced. But all of this has been at the expense of their net worth which should have been growing, not shrinking. So the "nest egg" of their home is robbed, over and over again, until by the time they retire, they have little or no equity left. Or, if they really over-do it, they end up "upside down" on their house and end up in foreclosure.

2. Failing to Save: Many of those folks you see who have a new car, new boat, and lots of other toys and heavy spending habits also have nothing in the bank at all, in terms of savings. To these folks, credit rating is everything, as everything in their lives - even their food - is financed. So long as they have a job and make the minimum monthly payments on the credit card, everything is fine. But one hiccup in the income stream, and whoops!

Again, the real damage may not be seen for decades, when the person retires and discovers what they should have known all along - that they have no money to live on, other than Social Security. And even then, with their debt load, they end up in trouble.

3. Credit Card Debt: Credit cards are the easiest way to "live beyond your means". You can charge up thousands of dollars a year on a credit card, and pay back maybe hundreds. For the first few years, you are living large - spending more than you are making. And the "monthly minimum payment" is pretty small. They keep increasing your credit limit - or you get additional cards - until those monthly minimum payments suddenly balloon out of control (a rate jacking often precipitates this).

Again, this can go on for years before the piper has to be paid. But if the consumer uses a hone equity loan to pay off the debt, the process can be repeated, over and over again, for decades.

4. Bankruptcy, Foreclosure, Repossession: Of course, once you get behind the 8-ball in a big way, the house of cards comes tumbling down. The re-po man comes with his "stinger" to tow away your car, and the bank forecloses on your granite counter-top mini-mansion. You may end up in bankruptcy, which may discharge some or all of these debts, or provide you with a low monthly payment on the balance.

For some, this is a wake-up call that they have been living beyond their means and the chickens have come home to roost. For others, it merely is another stage in a continuing effort to live large. Fresh from bankruptcy, they go out and spend even more - at even higher interest rates. There is a whole industry devoted to the "bad credit" consumer. Since you can't declare bankruptcy for another seven years, you are, ironically, a good credit risk. They can take your kidneys, now, if you don't pay up! (figuratively speaking).

My friend's situation was typical of this pattern. They had lived large for many years, taking equity out of their home in the process. And what they spent it on was mostly crap - putting on the dog to impress others, donating huge sums of money to one of those fancy new churches, and other crap like that. They saved nothing and spent more than they made.

When retirement was thrust upon them, they sold their house and with what little was left over, bought a motorhome. As I noted before, the "full time" motorhome lifestyle is very, very expensive - more so than renting an apartment. So they started running through what little money they had, and even bought a new motorhome, financing it on time. Pretty soon, the repo man came and took the motorhome away.

Even so, they had enough in Social Security to live on comfortably. But it was the same old story. For every dollar coming in, they had to spend a dollar-ten. And as I went through their bills, I realized that they had a lifestyle better than my own - cable TV, brand-name liquors, deluxe DSL service, and the like.

I pointed out 10 areas they could save money on - enough to bring their spending back down to less than their income. And for each area of savings, there was some reason why they couldn't do it - fear, status, whatever. They couldn't give up $100 a month for cable, right? What would the neighbor's think, that they were poor?

But then came the punchline. They wanted me to pay off their credit card debt, as a "loan" or to "help them out" so they could get a "fresh start".

But after 70 years, how many "fresh starts" do you need?

No matter what your income level, you can spend less than you make. And in fact, when you take on debt, because of the interest you pay, you end up realizing less in income as a result. The poor are poor not only because of limited salaries, but because they spend tons of money on interest and fees than you and I do not pay.

So a poor person starts out with less money, but then squanders half of that in payday loans, rent-to-own furniture, and other bad bargains that squander what little they have - promising them that they can have more NOW and pay later. But all it is, really, is living the 110% solution - spending more than you make. And over time, not only will you be poorer, you will be miserable.

If you can spend less than you make - 99% or less - you will actually be wealthier. Yes, it means you may have to wait before you own that big-screen TeeVee or do without some things that your indebted neighbors have. But in the long run, you come out far ahead.

But, unfortunately, if you do this, you will come out ahead, and your indebted neighbor will knock on your door one day and say, "Can you help me? You're lucky, you've got money and I need your help! "

People like to waste your time. Time is money, as they say. But more importantly, time-wasters take away something more precious than money - your time. You have only so much on this planet, so why waste it on idiots?

If you deal with the public, you will run into time-wasters all the time. Even if is just buying or selling something on eBay or Craigslist, you get time wasters. How can you spot the time-waster? What can you do about them? Here are some tips.

Time-wasters fall into a number of categories:

1. Dreamers2. People who like to hear themselves talk3. Lonely People who want companionship4. Nutjobs

1. Dreamers, as the name implies, are people with their head in the clouds and no real view of the world. I put an ad on Craigslist for a set of BMW rims recently, and the reaction was interesting. Most of the people responding were 20-something kids with no clue about life. Some were clearly dreamers.

One fellow e-mailed me, wanting more information, more photos, and other information. He called me and said he was "definitely interested" in the rims, but his car was broken and he couldn't drive up to see me.

Here's the deal - if your car is broken, you have other priorities than buying a fancy set of rims. He had no intention of ever buying them, he just wanted to dream about it and waste my time. Once he told me his car was broken, I just said "thanks, but they've been sold".

Similarly, when I recently sold my tractor, several "dreamers" e-mailed me wanting all sorts of esoteric information. These folks never bid, of course, they just want to make you jump through hoops. The fellow who bid and won the tractor never e-mailed me at all, until he won it. It usually works that way.

2. People who like to hear themselves talk just want to call you up and blather on about how they used to own one just like it, or other such chit-chat. They will literally bend your ear for an hour or more, if you let them.

I get a few of these in my Patent practice - sort of dreamers, too. They dream of striking it rich with an invention and want to talk about it. But talk is all they really want to do. When you tell them how much it will cost - just in government fees - they back away. But they still want to talk, even though clearly they are not able to afford the process.

With the BMW rims, I had another 20-something fellow send me e-mail after e-mail, telling me how important he was and how he knew all about BMWs, etc. He wanted to hear himself talk.

I missed these cues and stupidly agreed to sell him the rims. He never showed. He called and said he'd come next week. Never showed again. I sold them to someone else, and he acted all offended, as if his time was valuable and mine worthless.

When you are dealing with someone who is serious, there are two things they will ask - how much and when I can pick it up? Anything beyond that is a dreamer or a talker.

3. Lonely People who want companionship are sort of along the same line. But as the talker wants only to engage in self-aggrandizement, the lonely type just wants to hear another voice on the phone or a response to an e-mail.

Again, the warning signs are simple - they want to talk about a lot of things, except the business at hand. And they will bend your ear for an hour or more or send you "endless e-mails" and often go off-topic.

Cut it short. Gee, I'm sorry, the item is sold. Sorry, I can't help you. Whatever it takes. On eBay they send these inane messages and then get upset if you don't send detailed responses.

Your gut response is to feel sorry for such people. But you can't save the world, and frankly, most of us have a hard enough time saving ourselves. Cut your losses and move on.

4. Nutjobs embody a little of all of the above, but in addition are mentally unstable. You run into people like this throughout life. The crazy guy who screams at people over some perceived traffic infraction, for example. You can't avoid them.

The "likes to hear himself talk" guy with the rims turned out to be a nutjob. When he didn't show after the second week, I sold the rims to the next kid in line. Well, Mr. All-Talk went nuts. How could I do that when they were promised to him?

But the deal was, he never intended to buy them, just "think about it" and in the mean time, waste my time and jerk me around. He became so deranged, I had to call the Police. Dealing with the public can be a nuisance.

If you are selling items on eBay or Craigslist, you do have to be careful. One way to avoid these time-wasters and nutjobs is not to hold things for them or answer long, detailed e-mails about an item. They either want it or they don't. Sell to the first person to come over and get it, and don't get conned into "holding" an item for some kid-dreamer.

The key to dealing with time-wasters is to detect them early on and then cut them off early on. If you don't detect the time-waster early, you waste time. And if you don't quickly cut them off, you waste time as well.

Here are some hints:

1. If someone sends a long e-mail with lots of questions, chances are they are not serious about anything. If it is an item you are selling on eBay or Craigslist, chances are they will never buy it.

2. When buying something on eBay or Craigslist, if someone won't answer simple questions about an item, then forgetaboutit! Chances are, they are a time-waster. I once chased some car parts as far as Rochester, to a seller who would not give me his address. I called once I was near and he didn't answer. Later on, he e-mailed with some lame excuse about leaving his phone off. He said to come back some other time. You know what? It ain't worth it.

3. When someone lists something for sale, and you e-mail them and they don't e-mail back, don't waste your time e-mailing again and again. Time-wasters. These are the "it's for sale, but I'm thinking of keeping it" crowd, and you might as well not bother.

4. When someone asks you to "hold" something for them for more than 12 hours, forgetaboutit! Tell them, if it is still available when they want to come get it, they can have it. Otherwise, first come, first served. If they really want it, they'll come get it.

5. If someone misses an appointment or doesn't follow through, just move on. If Joe Blow calls you up and says he is "serious" about buying your car, and you make an appointment with him to have him come look at it, and then he fails to show and doesn't even call to say he isn't going to show, just move on. He might call back a week later with a lame excuse that his sister-in-law had a dog that was sick or something - but he's still "serious" about buying your car. Move on. Forget about him. Don't turn away five real buyers because of one oddball dreamer.

You will find time-wasters like this more often in impoverished places. In Central New York, for example, where the standard of living is very low, you'll find a lot of people who dream and fantasize about buying things, often acting out these little games at your expense. In more affluent areas, where people actually have money, such as in the Washington DC area or Florida, people are less inclined to do this.

You can realize a lot of money by selling off things you don't want, either on eBay, Craigslist, or at a garage sale. And you can score some good bargains the same way. But the key is to avoid the time-wasters. They guy who has the car for sale but won't list a price, for example, is not going to be the source of a bargain used car. The fellow who says he is "serious" about buying your car, but never shows up (but asks you to "hold it" until payday) is never going to buy.

Monday, May 30, 2011

Why is the "delete everything I just did " button located next to the "continue to next page " button on websites that ask you to fill out a lot of data?

The Internet is great. No, I am not talking about Twitter or Facebook. The real Internet - the one that allows you to mine all sorts of great data - the one that allows you to work online, communicate online, and make a living online. And I spend a lot of time on the Internet as part of my job. I interact with clients online, I file my Patents online, and I send and receive documents to and from clients online - everywhere in the world. It has truly liberated us.

The fake Internet - Facebook and their ilk - are just showy crap for people who don't know how to use the Internet. But for a lot of people, that IS the Internet. But for the rest of us, we don't need a "skin" covering the real Internet, and prefer to access real pages rather than a facebook page.

Websites are all different, of course. However, we are starting to see many coders start to coalesce around certain Internet norms. You can go onto a commercial website and order a part for your computer, your car, or whatever, and the checkout procedure will seem very familiar and consistent with other sites. That is, most of the time.

Some sites, on the other hand, have annoying features which cause a lot of frustration. And I think one reason this is true is that the person who writes the code for the site never actually USES the site. So they have no idea how to make the site work or how people would use it.

Perhaps in 10-20 years, all of this will be behind us - most web sites will have fairly standard formats and data entry routines. But today, they can still be all over the map. And some website features can be frustrating and annoying.

Here are some of my pet peeves, in no particular order.

1. Putting the "CANCEL" button next to the "CONTINUE" button and making them appear identical. You fill out three pages of forms online, and then hit what you think is CONTINUE only to erase everything and start over. And no, it doesn't provide a warning pop-up.

2. Putting the "CANCEL" button next to the last field in the page and the "CONTINUE" button in some obscure location. Same as #1 above. Why does the coder assume that the user wants to CANCEL and place that prominently, but that the more likely choice, CONTINUE, is to put in an obscure location?

3. Dumping a page when a person hits "CANCEL" by mistake, without asking for confirmation.

4. Inconsistencies in filling out date fields - some require you to TAB between fields (such as the parts of a phone number or date field) while others jump to the next field automatically. Let's pick ONE method and stick with it, eh?

5. If you have trouble with the site, you call the 1-800 number listed and they say "I'm sorry, but we don't handle the website" - and in fact there is no way to get in contact with anyone who handles any website problems.

6. The opposite of #5 - you e-mail or call about a company problem, and get a guy who says "I just handle the website" and has no idea how to contact the company.

7. An entry page that says "click here to enter site" when you type in the URL for the site. Why not simply go to the site?

8. An entry page that plays an annoying flash animation, video, or slideshow, before it will let you get to the real page.

9. Same as #8 above, but it has a "click here to bypass the idiotic multimedia presentation".

10. Same as #9 above, but the "click here to bypass" is obscured by an error message from the flash player.

11. Sites that are long on graphics and multimedia content and short on real content. All car maker sites are like this. Tons of interactive videos with gushing ad copy, but no where is listed the towing capacity or horsepower of the car. A website is a data source, not an advertising venue. Put the Engineers in charge of the website, not the advertising department. NO ONE WATCHES YOUR STUPID AD VIDEOS, ANYWAY.

12. Sites that change formats regularly for no apparent reason whatsoever, other than to "freshen" the format and graphics. Usually, this means your most often used features are obscured in favor of video or multimedia-laden fluff.

13. Websites so poorly laid out that the only way you can find anything is to use the SEARCH feature or SITE INDEX to find things (example, finding FORMS on www.uspto.gov requires you use the index, pretty much).

14. Sites with no SEARCH feature or INDEX, making it damn near impossible to navigate.

15. Sites for companies that do not provide their basic contact information - mailing address, phone number, fax number, etc. I can understand not providing phone or fax, but mailing address? Come on...

16. Photo sites that allow you to upload your JPEGS and store them for free. After a year and 1,000 photos, they decide to reformat everything to a proprietary format, so you can't download your photos anymore or use the site for photo hosting.

17. Same as #16 above, but they start putting annoying and loud video ads in the sidebar. Yea, I'm talking about Webshots.

18. Websites with annoying pop-ups, pop-unders, and the latest gag, the slide-up (when you move the mouse over a word). Snopes is a prime example.

19. Websites that ask you to update your password every month for security purposes. How does changing your password constantly increase security? If someone steals your password, they have a whole month to use it - and can update it when prompted. I fail to see how this ever adds any security whatsoever. Just annoying.

20. CAPTCHA (Completely Automated Public Turing test to tell Computers and Humans Apart) blocks that show text so distorted that 9 times out of 10, you can't make out what it is showing (Wikipedia seems particularly prone to this).

21. Use of CAPTCHA for totally innocuous pages.

22. CAPTCHA blocks that never, ever work at all (such as the WIPO website).

23. CAPTCHA blocks that say "entry is incorrect" and then allow you to download the data anyway (WIPO, again).

24. CAPTCHA blocks that use numbers and letters both, so you can't tell if that is supposed to be a "zero" or an "oh". Why not eliminate the zero and oh from these and save everyone a lot of hassle.

25. Paranoid levels of security on websites - sending you confirmation e-mails that you have to click on a link to activate some security measure - all so you can post a comment on the "cute kittens" discussion blog.

26. Blogsites with paranoid levels of security that won't let you post a relevant comment, but are full of spam comments from Russian Viagra sites. I think your security measures ain't a-working.

27. Sites that force you to watch a 15-30 second ad in order to watch a two-minute video. CNN and YouTube are prime examples. Um, one reason I stopped watching television was that the ad content was so high. You think I'm going to tolerate a HIGHER ad content on the Internet?

28. Sites that provide video-only content, without text versions of pages or other real content. What is this, Fahrenheit 451 ? No one is assumed to be able to READ anymore?

This is just a short list I created. I may add a few more things over time...

The freakonomics people have created quite a franchise from one book. But is the information in that book really relevant or accurate? I am less and less inclined to think so.

As I noted in my previous discussion about Gurus, one way to market yourself as a Guru is to do what all the good Gurus do, and that is sell unorthodox advice. No one will pay you a plug nickel for a diet book that is just all blank pages with the words "Eat Less!" on them. But that is the common sense (and only good advice) that dieters really need. There is no "trick to the tiny belly!" other than to eat less and exercise more.

Similarly, in financial matters, the only sound advice is to spend less and save more. Anything else is just stupid trickery that doesn't accomplish much, if it fact, it doesn't set you behind (e.g., "Pay off your smallest debts first" - which makes no sense unless they are also your highest interest rate debts).

The freakonomics people are in the same genre. They tell stories in their book and their movie, and their website that try to get you to scratch your head and say, "Gee... I never thought of it THAT way before!"

I read their book a long time ago, and sort of thought, "puh, why is everyone making a big deal about this book?" and promptly forgot about it. A catchy title, and catchy cover graphics - the sort of thing that used to sell at Borders. But like the book "Liberal Fascism," beyond the catchy title and cover graphics, there was no "there" there to back it up.

In reality, most of their data is of the "Well, duh!" variety, or it comes to inaccurate conclusions based on correlation, or they confuse correlation with causation (while trying to maintain that other people do just that!) and as a side dish, throw in a little racism, to boot. Let me explain.

1. Real Estate Agents

For example, one of their startling discoveries is that Real Estate Agents really don't care about getting the maximum price for your home. On a 6% commission, an additional $10,000 in sales price means little to them personally (particularly if they are splitting the commission and after they pay their broker). They make more money selling more houses than maximizing the profit from one sale. So they are better off selling two houses a month for slightly below market value than selling one house above market value.

I am not sure this qualifies as a "startling revelation" to anyone - particularly if they can do basic math and understand how percentages work. But again, as they told us in Peggy Sue Got Married, "you don't need to know math in real life!" and many people believe this and think fractions are "hard" and thus don't understand how the Real Estate Agent's commission scheme works.

But in addition to not being much of a revelation to anyone past the 4th grade level, it also is somewhat wrong. Yes, Real Estate Agents want to move houses - that is their job. And yes, they might push a low-ball offer to get a house sold and get a commission. But oftentimes such offers may be in the owner's best interests.

As "proof" of the double-dealing that Real Estate Agents do, the author's point to a study which shows that an Agent's own house stays on the market longer and often goes for a higher price. Confusing correlation with causation, the authors then point to this as "proof" that the agents are pushing sellers to take low-ball offers.

But they fail to take into account that many Agents put their homes on the market at high prices, just to see if they can sell them. They are not moving to another town (as you may be) but are testing the market. And since they understand how to make a house show properly, they can polish up their home, put a premium price on it and wait for the "right buyer to come along". If it sells, great. If not, well, they ain't moving anyway.

But you, the homeowner, is often under pressure to sell, due to job relocation or because you already have an offer on another home. So you can't afford to wait around and see if you can get more money for your home. And likely, too, you ignored your agent's advice and left all your personal possessions and junk in your home (see my postings on how to market your house) so it shows poorly and thus commands a lower price. You are not a Real Estate professional, and maybe sell or buy a house 2-3 times in your lifetime. So naturally, you are not as good at it.

And since you likely have to sell, the Agent is not going to discourage you from taking a "reasonable" offer close to your asking price. Why? Because the old adage is true: The first offer is often the best offer. When a house sits on the market for a long period of time, people suspect that something is wrong with it, or by now you are desperate - so they low-ball you.

And I have seen firsthand, homeowners who get greedy and say "I'll hold out for another $10,000" and wait months and months, only to take an offer LESS than the first one, and that after paying $10,000 in mortgage payments in the interim. Does the homeowner really come out ahead? No.

But then again, I made a lot of money in Real Estate, and I have a lot of friends in the business - Agents, Brokers, Mortgage Brokers, closing attorneys, appraisers, etc., and I have seen these scenarios play out in person. The raw data collected by the authors of freakonomics is correlation, not causation. And the authors, who stress throughout the book that "everyone else" confuses correlation with causation, step right into that smoking pile of dogshit.

If you are selling your house, and you get a good offer that is reasonable, take it - or at least counteroffer. The author's advice to "hold out" for more money and keep the house on the market longer and longer may have some theoretical value, but in the real world, often doesn't work out.

For example, I could have gotten more money for our vacation home if I sold it today (in May), as opposed to November. But I would have paid $16,000 more in Agent fees and another $30,000 in mortgage payments, utilities, insurance, repairs, and taxes in the interim. So taking a "lowball" offer of $45,000 less actually was a sound move. Screw freakonomics - they have no clue what they are talking about.

2. Parenting

In the next section of their book and movie, they talk about parenting. Their conclusion is that the socio-economic class you are from is more determinative of the success or failure of your children than anything. So if you buy a lot of parenting books, your kid won't come out better. That is predetermined by the fact that you are rich enough to buy a lot of parenting books and are inclined to do so.

While there is some truth to this, it tends to over-simplify and again, takes correlation (success rate of children and income level of parents) and turns it into causation - the very thing the authors decry.

Rich parents who abuse and neglect their kids are likely to have unsuccessful or underachieving children (and I can point to some pretty wealthy families in places where I grew up as proof of this, including my own). On the other hand, a poor family that values education and encourages their children to get ahead will end up with successful children. Actual actions are more relevant and powerful that meaningless statistics. Your outcome and future is not predetermined by your starting income level - although that is a factor and undeniably helps.

Your parents may be rich - if they work in organized crime. That doesn't mean you will not end up in jail. And in fact, you may be more likely to end up in jail as a result, if you follow the family business.

But all of that is lost on the authors. No, no, money is the whole deal. If you come from wealth, you will be wealthy. If you come from poverty, you will be poor. And this sort of statistical manipulation does fit a left-wing "let's redistribute the wealth" agenda. After all, if your success in this country is determined solely by income, then all incomes should be made equal, right?

3. Racism and Baby Names

One of the most odious parts of the book is where they engage in the dirty little secret game that most white people engage in, once the blacks have left the room, of making fun of black names. If you are black, you probably suspected that white folks poke fun at your culture, clothing, and names, whenever you are not around. And maybe black people do the same about whites - I have no data on that.

But white folks do it - they ALL do it, even the so-called "Liberal" whites. Liberals, of course, cloak their participation in the game as well-meaning concern for blacks - because they may be limiting their child's opportunities later in life based on oddball-sounding names like "La Zanya" (no kidding, an actual name).

OK, perhaps it is harmless sport, or closeted racism. But the freakonomics people bring it out of the closet by pretending that it is a scientific study. Now we can make fun of black people's names and pretend it is scientific, not just racist!

But again, their logic and reasoning falls down here. First, they claim that names make no difference in the overall success rate of a child. We are given stories about a man who names his kids Winner and Loser. Loser goes on to become successful, while Winner ends up in jail. Baby names make no difference, we are told.

Then they go on to say that actual names are not indicative of success or failure of a person, but once again, it is socio-economic class and income. So a "black baby name" doesn't cause disadvantage, but rather the fact that the person bestowing the name tends statistically to be from a lower socio-economic class.

OK, so a few chuckles at funny made-up black names, and then the conclusion that it makes no difference what you name your kid - socio-economic class dictates all (this is apparently the secret side behind everything that they tout in their blubs).

But then they go on with a study where they sent out resumes on Monster.com to thousands of employers. On half they put white-sounding names and on half they put black-sounding names. And guess who gets the interview call-back? Not hard to figure out. Yes, Virginia, racism exists.

So, it makes no difference what you name your kid, the author say, because socio-economic class dictates all. Unless you give your kid a black name, because then racism kicks in. Which is it? Names matter or they don't?

My conclusion is that they have no conclusion. The chapter on baby names is just a chance for white folks to legitimize their practice of making fun of black names. And please, don't try to tell me you don't do it, because even the most liberal person does it (they seem to do it the most!).

Perhaps to avoid charges of racism, they throw in the second-most popular sport amongst affluent liberal urban whites - making fun of white-trash names. Brandy, Crystal, Tiffany - all the names you hear in the trailer park or at the strip club. Ha-ha, isn't that funny. But it's not just social snobbery. No, this is all in the name of science and economics, although once again, they sort of fail to come to any sort of conclusion that isn't based on correlation, not causation.

* * *

So what is the point of freakonomics? Well, it has been good economics for the "Rogue Economist" authors, who have a book, a movie, a website, and many guest appearances on talk shows to their name. The money is rolling in, and freakonomics proves, yet once again, that you can make a boatload of money selling "unconventional advice" to people - stuff that gets then scratching their heads and saying "Gee... I never thought of it THAT way, before!"

But in terms of practical advice for individuals or even institutions, it leaves a lot lacking. Should you take the first offer on your house, or hold out for more money? Likely, you will take the first offer, and the Agent is probably advising you that because they've seen what happens when there is no second offer and the seller gets mad. Should you name your kid "La Zanya"? Probably not. Kids have a hard enough time these days and as adults don't need to be profiled.

Is your destiny determined by the socio-economic class you come from? I think not - although it is a powerful influence. Over the years, I have worked for a number of men (and women) who overcame their socio-economic backgrounds to become wildly successful and wealthy men and women. Their parent's income, it turns out, was not determinative of their success later in life.

It turns out that we all have a measure of free will in this world. It turns out that your personal choices in life are far more powerful than statistics and surveys. Correlation is not Causation, as the authors note time and time again (while blithely ignoring it). And your life is more than a set of statistical correlations.

Sunday, May 29, 2011

While death and taxes may be inevitable, debt is not inevitable, and taxes can at least be minimized. When you take on debt, you may be increasing your tax rate. Let me explain...

As I noted in a previous posting, during your working career, your incentive is to make as much as possible. But when you retire, the incentive is to make less - to avoid paying taxes. So if you take out less money from your 401(k), you pay less in taxes, and received a greater benefit to yourself over time. If you can stay within the 15% tax bracket, you end up getting more bang from your buck than if you take out more and end up in the higher brackets, such as the 25% bracket and above.

And at the present time the 15% bracket limit works out to $34,500 individually, and $69,000 married, filing jointly. Most middle-class people can live fairly comfortably at those limits, as the median income in this country is about $50,000.

And they can live comfortably at those limits, if they choose to do so. If they choose to be debt-free.

The problem is debt. If you retire with a debt load, such as a mortgage, then you will likely have to take out more money than the numbers outlined above, just to make your mortgage payments and live a comfortable lifestyle - if you are a typical middle-class or upper-middle-class person living in America.

So, if you retire with a $2000-a-month mortgage payment, that might mean you need an additional $24,000 a year in income to live on. And that means spending your 401(k) money faster and taking it out at a higher rate.

And that higher rate might push you into the 25% tax bracket, which means every dollar you take out to pay that debt costs $1.25, instead of merely $1.15 if you kept to the lower bracket.

Yes, you might be able to deduct the interest on your taxes. But if you are near the tail end of a mortgage, this may mean little in the way of interest deduction, and in fact, a standard deduction may be higher. And of course, other debts (credit cards, car loans, etc.) are not deductible at all.

Optimizing the payback from your 401(k) and Social Security dictates that you stay in the lower brackets, if at all possible. The jump between the 15% bracket and 25% bracket is the most pronounced (thank George Bush for that, with his upper-class tax cuts).

For the average middle-class person, I think staying in the 15% bracket in retirement is a sound goal. It also provides you with a nice spending limit goal as well.

But the interesting thing is that the cost of debt is not just in the interest and principle you have to pay back, but also in the excess taxes you may have to pay if you are paying off debts in your retirement years.

And yes, this effect works for working people as well. Joe decides to put $500 a month into a car payment. In the 25% bracket, it means he pays $625 of his hard-earned cash to do so. But Steven decides to put that $500 into an IRA instead - which means he pays no taxes on that money. Spending more, instead of saving, can mean paying more taxes, both in retirement and while you are working.

CREE, which makes LED lights, has been one of my better stock picks, climbing 82% in value since 2009. LED technology will replace the incandescent and CFL, unless some other technology intervenes. While these lights are more efficient and cost less to own, many people still prefer incandescent bulbs. Why is this?

Back in the 1970's, we had multiple gas crises. Gas shot up from 25 cents to 50 cents a gallon after the Arab Oil Embargo, and we all thought the world would end. Then, in the late 1970's it shot up again, to nearly a dollar a gallon (imagine that!) and you could only buy gas on "even" or "odd" days, depending on your license plate number. Kids today think I am making that up.

Gas was expensive, even by today's standards, taking into account inflation. And at the time, an odd thing happened - people bought the largest and most fuel-inefficient cars imaginable. The car companies did a good job of telling people that the "full-sized American car" would become obsolete in a few years and a "collector's item" and you'd better buy one NOW before they were all gone.

And in the mid 1970's, people ran out and bought 8 mpg, 5,000 lb. barges of cars, whose primitive emissions controls strangled them to 200 HP or less. People are idiots.

By the late 1970's, such barges were a drug on the market. You could not give away a full-sized American car when gas shot up yet again. And yet, many people bought these cars - mostly poor people.

My brother bought a fairly nice 1972 Chrysler New Yorker two-door for $500. It was not in bad shape, although someone had decided to repaint it - with a paint brush.

A 1972 Chrysler New Yorker 2-door. A huge car, with only two doors!

The car got atrocious gas mileage, of course. But as my brother put it, he paid little for it, so in effect, his car payments were made at the gas pump. (At the time, people were desperate to save gas, too. Popular Mechanics ran an article on how to remove half the pistons from your V-8 engined car to turn it into a V-4. I kid you not!).

So right away, there is an interesting conundrum. While a newer, smaller Toyota would have been more fuel efficient and less costly to own than this beast of a sled, my brother at the time did not have the capital to buy such a car, so the point was moot. He incurred higher costs by being less efficient, because he could afford the cash-flow of inefficiency, but not the capital for efficiency.

And of course, to make the Toyota more efficient in the long-run, he would have to drive it, accident-free, for many years. At his age, this was a dicey proposition. Throw in collision insurance, and the Toyota becomes a more expensive proposition.

Today, not much has changed. Poor people are more likely to drive inefficient cars, as they cannot afford to buy a Prius and wait for a 10-year payback in fuel savings. And even if they drive smaller cars, they tend to be bad shape, with the check engine light on, running inefficiently in "limp home" mode. They cannot afford the $250 for new oxygen sensors, as they don't see the payback at the pump (and indeed for an older car on its last legs, there may not be a payback). If you have no capital, but you have cash-flow, long-term efficiencies are less relevant to you.

LED lights suffer from a similar problem. Right-wing conspiracy websites abound with stories about how "good old American" incandescent bulbs are going the way of the full-sized American car - and how you should buy them NOW before it is too late! And many people are stocking up on 100 Watt bulbs, which are slated to go out of production, followed by smaller bulbs as time progresses.

But are these a good deal? Or just an energy and money-wasting 2-door Chrysler?

The problem is, an LED light bulb from CREE is more efficient, over time, than an incandescent bulb. But, it is far, far more expensive. Some of these bulbs can be $30 or more at Lowe's or Home Depot. That is a lot of money for a light bulb!

The theory is that they last a long time - 20-30 years or more. I could buy light bulbs today that I will never replace in my lifetime. And this will change the lighting industry in short order. I expect that in the future, lighting fixtures and lamps will come hard-wired with LEDs which will not have "bulbs" or sockets (why bother, when they last 30 years). In the meantime, people will "convert" older fixtures with the screw-in kind of lights, such as the CREE light as shown above.

Of course, you have to hope that your $30 light bulb will last 20-30 years to make the efficiency theory work out. Like any electrical appliance, there are reliability issues and infant mortality will kill off a certain percentage of products prematurely. I have noticed that cheap, Chinese-made CFLs, for example, can burn out in a matter of six months to a year, and are no real bargain.

Whether this happens in the LED field - with some brands or models being problematic and others less so, remains to be seen. Who is the Honda of LED lamps, and who is the General Motors? We will have to find out, over time, and it will be a costly learning curve.

For people like myself, who can afford a $30 light bulb, the issue is moot. They are more efficient, last longer, and provide better light at a lower cost. But to poorer people, $30 for a light bulb is a lot of money. They may opt for CFLs or lower wattage incandescent bulbs. Like the gas-guzzling Chrysler, they can "afford" the extra $1 on their monthly utility bill, which seems small, but can't afford the $30 hit to their capital - when the payback is so long.

LEDs are the wave of the future - far better than CFLs. While they are more expensive, they last longer and have no mercury issues like CFLs. Incandescent bulbs will be illegal in the short term, and they are horribly unreliable as well (and use a lot of energy and generate a lot of heat).

It is funny, but I suspect in the next 5 years, you will see Real Estate listings touting that the house was converted to LED lighting. After all, to re-do all the lights in your house to LEDs would cost hundreds and hundreds of dollars.

But in the meantime, we have the efficiency conundrum - poorer people will continue to use less efficient bulbs, only because they cannot afford the capital to invest in long-term energy savings.

And therein lies the problem with efficiency - for people as well as corporations. Energy-saving home improvements or more efficient cars are moot for people with no capital to invest in them. And for companies, increased productivity is often cost-prohibitive, as they do not have the capital to pay for increased efficiency, but instead, can pass on the higher costs to the marketplace (as GM tried to do in the past).

Long-term efficiency savings are hard to recover when they require a large capital investment.

* * *

P.S. - Please, no comments or e-mails from Mopar fans trying to tell me how their 1972 New Yorker got 30 mpg! I am not that stupid and neither should you be.

Friday, May 27, 2011

Income in retirement and income while working are entirely different things.

One problem that most of us have when working versus retirement is our attitude toward income.

When you are working, you want to make as much as you can - the more you make, the better.

But when you are retired, how much you make is a matter of choice, for the 401(k) generation. How much you "make" is determined by how much you withdraw from your tax-deferred savings plan. This is a whole different head, and something that takes most of us some time to get our heads around.

The goal in retirement is to spend less - if you can, and within reason. Since you don't know how long you are going to live or what unexpected expenses you are going to incur, you can't afford to spend it all now, lest you end up broke later on.

As I noted before, my fear about the 401(k) generation is that there will be a small percentage of us who, upon reaching age 59-1/2 (the age you can withdraw your money without the 10% tax penalty) will basically take all their money out and spend it within a year or two. New cars, new boats, vacations, drugs, clothes - you-name-it and they will blow their money on it.

How do I know this? Well, already we are seeing people take money out of their 401(k) and IRA plans prior to retirement and paying the 10% penalty and spending it all to pay off credit card debts or car loans, or whatever. Which is the same as just blowing it all on crack cocaine.

A still larger percentage will take money out not all at once, but at a rate faster than they should, and end up pumping the well dry long before they die. This is, of course, the tricky part. In an optimal world, you'd want to spend your last penny with your last breath, but many of course will die early and leave money behind, which is bad. But many more will spend it too fast and end up trying to get by on Social Security, which is worse.

Getting into the mindset of making less money - of making your income variable and optional - is the key, and it does take a mental gear change.

And it means that you have to look at spending differently and more closely. Sure, it would be nice to have a new "smart phone" with a texting plan and spend all day downloading "apps" for it. Handy, convenient, and totally unnecessary for daily living - but it comes with a $100 a month price tag - if not more.

Subscription services like that are a constant drain on your finances, and for many of us middle-class folks, we have to ask ourselves whether we really "need" electronic toys and the like, or whether it is a better idea to have money in the bank to rely on later in life.

When you are working, it seems these sorts of "time-saving" toys (although the jury is still out on that one, in my mind) are not that expensive, and besides, we "make good money".

But as I illustrated before, even if you save $1,000,000 in your 401(k) plan chances are, this means an effective income of maybe $40,000 a year plus your Social Security. That ain't a lot of money for a lot of us, used to making $100,000 a year or more, even throwing in another $36,000 of Social Security money.

But once you are retired, hopefully you can also be debt-free. And if you set this up right, your need for money should drop dramatically. Since you won't have a mortgage payment, credit card payments, and car payments, you no longer need to keep the money train running at full speed.

But that takes some foresight, and as I noted, some folks are retiring these days (or trying to) with a mountain of debt over their heads.

If you stop working, you may also find you spend a lot less. As I noted in a previous post, many middle-class people spend an hour's income on lunch every day - and perhaps another hour's income on commuting. Office clothes, dry cleaning, and other work-related expenses do add up. And since you are making a "lot of money" you end up in a higher tax bracket, which means for every dollar earned, you bring home less.

Most financial advisers posit their retirement scenarios based on the retiree making about 2/3 of their working income. The savings in not working can account for a lot of this decrease, as well as the elimination of debt.

When you retire, you may be able to structure your life to stay in the 15% bracket while still maintaining a nice lifestyle. With no onerous debts to pay, you don't need to bring home the bacon.

Of course, you can get a head-start on retirement by getting out of debt NOW - or creating a concrete plan to be debt-free over a number of years. I call it practice for retirement, and it is helpful to understand exactly how much you are spending, and on what, and how much you will need to retire.

You'd be surprised how many people have no idea what their household expenses are - their food clothing and other budgets. Most folks just spend and spend, and if they run out of money, put it on a credit card. A lot of people do that - did that - in the last two decades. And the chickens have come home to roost, as our generation nears retirement.

The happy news is, learning to live on less is not as onerous as it might seem. In retrospect, spending a lot of money was rarely a happy or fun thing. You realized, deep down, that you were squandering cash, and oftentimes, it ended up casting a pall over the fun you were having. Having a good time and spending money are not the same thing. In fact, sometimes it is more fun to spend less.

Should you leave your computer on all the time, or shut it off at the end of the day?

Until about 1995, most people shut off their computers at the end of every business day. Actually, before the 1990's, we often shut off computers between uses. DOS would boot up almost instantly, so the time-savings in leaving your computer "ON" all the time was nil.

But Windows changed all that. The program takes forever to boot and to shut down. The much touted "instant on" operating system has yet to come to pass (why not? Memory is cheap and a hard-wired OS it technically feasible). So many folks took to leaving their computers on all the time.

At first, this seemed like a waste of electricity, but then the government stepped in with its EnergyStar requirements, and now we can all feel like we are saving electricity by allowing our computers to go into a "sleep mode" when not in use, rather than shutting them down entirely.

Until recently, I did just that. However, lately, I have been shutting my computers off at the end of the day. Why is this?

Well, for starters, even in a sleep mode, computers and particularly monitors, use energy. If you feel the heat vents on a flat panel display when they are shut off, they are quite warm. And some displays will not shut off, even if you turn them "off" (they go into standby mode instead). So killing the power and the power supply is the only way to fully shut off a computer in some cases.

Rebooting on occasion is also good for Windows, as it tends to clear out the backlog of temp files, open file handles, and other half-assed things Windows does on occasion (as well as many applications, such as Adobe Acrobat).

Are there any energy savings? Perhaps, but not much. As this thread notes, most computers, when running draw less than one amp, with the displays being the major draw in power. For a large office building, this could, of course, add up to a lot of power cumulatively, but then again, so can leaving the lights on (which many offices do as well). We are talking perhaps a 10 cents a day in power, perhaps. Not much. But over a year, that does add up to $36.50 in savings. For a large company with 1,000 computers, this could be as much as $36,500 in electricity, assuming each computer uses 100 watts during off hours.

One could also argue that those 100 watts also need to be offset by air conditioning, which would generate other savings. You may not think 100 watts is a lot of heat, but it does add up and does make a room warmer. I notice my office is distinctly warmer than the rest of the house, mostly due to the computers, monitors, printers, and other electrical appliances running.

Some folks would argue that cycling the computer on and off creates more wear on the computer, as it goes from room temperature to operating temperature and back again - thermal cycling. There may be some Engineering truth to this, of course, but I don't think it significantly degrades the product life of the computer - it will be obsolete long before it wears out. And most computers these days fail due to overheating rather than heat cycling.

Parasitic electrical draw, on a household scale, can add up, however. We have three computers (plus a laptop), and maybe a dozen wall-pack transformers, for everything from the DSL modem, to the router, to my cell phone docking station, to a half-dozen office phones, clock radios, weather radio, and the like. Add this all up, and you may have a fairly large chunk of the non-HVAC portion of your electric bill.

Leaving the computer on all the time also allows it to update software. Automatic software updates can be very annoying, as each manufacturer decides when it wants to update its software, and oftentimes, the updates are cosmetic or to add "features" you don't want. For example, some newer versions of Windows Media Player as just plain annoying. I prefer the older version.

And of course, with a computer you use infrequently, like a laptop, all these programs decide they are overdue to "phone home" the moment you turn on the laptop, usually at a limited bandwidth Wi-Fi location.

So there you are, 10 minutes before your flight, and you want to check your e-mail. Your computer decides that a 10GB Windows Update is a better idea and starts to download it. You try to abort it to get on the plane and screw everything up. Worse, for the rest of your trip, your computer keeps trying to do this update, every time you turn it on - even when you have 20 minutes of battery life left.

For these and other reasons, I turn most update settings to "OFF" and then update manually once in a great while. I have found also that sometimes a manufacturer will send an update, only to later find it was bug-prone, and then have to send a second update to fix the first one, but by then, your computer has crashed.

When you computer is on for long periods of time unattended, it could also be vulnerable to attacks by other computers, if your firewall settings are not properly set up or your firewall is off (a surprising number of people have no idea how to set up their firewall or indeed if they even have one). Perhaps it is a rare event, but it is a little scary sometimes, if you do go to Windows Firewall and read about all the pinging of your address that is going on from computers in Russia or wherever. Just the barbarians at the gate, testing the locks. Nothing to be concerned about.

Recently, I had to install a new hard drive and reinstall Vista (ugh). One annoying feature of Vista is the indexing feature, which you can disable, sort of, only after a lot of effort in obscure tabs and pages. It will sit there and grind away at your hard drive for hours, indexing files, a tacit admission that the underlying program is incapable of finding anything in a real hurry.

This constant head-seek annoys me, although I suppose it doesn't wear on the voice coil or anything (although why did my last drive fail again? Turns out it was low rpm - maybe from being on all the time?).

So lately, I have been shutting off the computer. Maybe it saves a couple of bucks a month (hmm... that's a free beer, and we like free beer) and it also discourages me from casual web surfing. If the damn thing is OFF, I am less inclined to turn it ON.